Abandon TV at your own risk

TV advertising does work for many mature package-goods brands. It just depends how you measure its effects.

These product campaigns rarely pay out in the short term. However, let's remember that the primary objective of most advertising for mature brands is not to drive short-term sales, but to build and maintain a brand's equity over the long term.

Also remember that traditional marketing-mix services are not intended to measure long-term effects of TV advertising, or any other marketing activity, for that matter. In fact, it's the short-term focus of these analyses that has resulted in package-goods marketers "poisoning the TV well themselves with escalating trade promotion," as reported in Advertising Age's May 24 cover story ("TV doesn't sell package goods," based on a Deutsche Bank analysis of return on investment from TV advertising).

Because of their differing objectives, trade promotions almost universally demonstrate higher payouts relative to advertising on any medium in a marketing-mix model. All of us who have presented marketing-mix-model results with the ad agency in the crowd can relate to this fact. It's no wonder that Information Resources Inc. and many others often double or triple the short-term effects of TV advertising from their marketing-mix models in an attempt to account for long-term effects. Isn't this testament enough to the fact that advertising works more to build brands over time than to boost sales immediately?

The long-term impact of promotion and advertising must be evaluated by looking at changes in such measures as brand equity and consumer price sensitivity over periods longer than 52 or 104 weeks.

The most significant academic research in this area has been conducted by Duke University Professor Carl Mela and his colleagues on the laundry-detergent category, which is about as mature as a product category can get. In their analysis of more than eight years of sales data, the authors showed that reduced TV advertising and increased trade promotion in this category resulted in consumers becoming more price and promotion sensitive.

The majority of academic studies support the conclusion that "main-thrust" advertising in mature product categories lowers consumers' sensitivity to price. We differentiate between main-thrust advertising (ads with a brand-building focus) and promotional advertising (ads with the objective of calling consumers to immediate action). It should be no surprise that when these types of campaigns are analyzed separately, promotional ads almost always have a higher short-term ROI, acting more like a trade event than a main-thrust ad campaign.

In a more recent study by faculty at the University of Chicago, results in the frozen-food category demonstrate strong evidence of advertising carry-over effects. For all five brands analyzed, the optimal media schedules for TV would have required gross-rating-point levels significantly higher than those executed over the three-year period.

little analysis

In spite of academic research in this area, very few attempts have been made to analyze long-term effects of advertising and trade promotion through marketing-mix modeling.

I was involved in one such project while at IRI that revealed decreased TV advertising and increased trade promotions for Diet Coke and Coca-Cola Classic over a five-year time horizon had eroded equity for both brands and resulted in increased price and promotion sensitivity. I should note this was not IRI's standard Mix Drivers analysis, in that we analyzed a time horizon long enough to actually observe long-term impacts of the firm's marketing strategies.

This type of analysis is especially beneficial to sub-brands such as Diet Coke, which are the first to have advertising cut when budgets get tight. Companies tend to think sub-brands can survive off halo effects of larger sibling brands, but research shows that not to be the case. Diet Coke is far more responsive to its own advertising than to that of Coca-Cola Classic, and brand equity, price responsiveness and many attitudinal measures have suffered in the past because of lack of direct ad support.

One of the brands included in the Deutsche Bank study was Coca-Cola Classic. In its analysis of the 2001-2003 timeframe, it would have spanned the worst and best ad campaigns for Coca-Cola Classic in recent memory in the 2001 "Life Tastes Good" and 2003 "Real" campaigns, with no cohesive campaign strategy in 2002.

If the Deutsche Bank analysis treated these campaigns separately, they would have certainly noticed a tremendous improvement in the effectiveness of the "Real" campaign over "Life Tastes Good" and the hodgepodge of copies in 2002.

Let's face the reality of most package-goods marketers. Brand managers and sales reps are rewarded based on short-term (i.e., annual) sales performance. It would take a very bold move to cut back on trade promotion and increase advertising at the risk of losing short-term sales in hopes of building stronger brands. Not only would retailers revolt, but a good brand manager would have been long promoted by the time long-term effects were achieved. So why not guarantee short-term success to ensure this year's bonus and a quicker promotion?

As long as marketers continue to concentrate far more on short-term rather than long-term health of their brands, we will continue to observe this downward spiral that comes from the predominance of price-oriented trade promotions vs. brand-building advertising. We in the marketing-research community further aggravate this problem by relying on short-term recommendations from traditional marketing-mix models to guide our recommendations for marketing strategy.

Does TV advertising work for mature brands? Sure it does, when executed and evaluated appropriately.

ABOUT THE AUTHOR

E. Craig Stacey teaches at Emory University's Goizueta Business School and is a senior principal with Analytic Consulting Group, Atlanta. He has worked at IRI and until recently was director-marketing science at Coca-Cola Co.